Month: June 2016

Repeat Vs New Business

handshake

During the initial stage of your business, you will concentrate only on revenue. Later this will move to profitability. But once you reach a stage of a steady stream of revenue with profitability you will start slicing and dicing the revenue. This is when you will first concentrate on the share of revenue from repeat business.

New business gives room to your growth acceleration. But repeat business gives the stability to your business.

Take, for example, if your total revenue is 10M and if you have a track record of having 4M as your repeat business from year after year then you should never reduce your yearly target as 6M new businesses. You should again keep 10M as the target for the year from New Business.

This will give a huge growth acceleration and out of my experience, I will say that you should concentrate to have your operational cost within the repeat business revenue and should use the revenue from new business in venturing out new ideas or expansion.

Apart from the revenue part, there are also other important key factors we can get from our repeat business.

1. Strategy

Repeat business is the best contributor to design the growth strategy of your company. You can get an in-depth vision on analyzing the data of the repeat business in terms of Technology, Customer Satisfaction, and common need of these customers so that even with a very small tweak you can do magically positive changes to your business.

2. Understanding about the work culture difference

This has proved to be the most important factor in any success or failure of the relationship.

It will take time for the customer to understand your work culture and the same way for  you to understand the work culture of the client. I have seen many business relationships fails during the trial project or after the first project itself.

It will take its own sweet time to understand both sides and particularly if it is offshoring then it will take much longer time than near-shoring. Once you both cross this chasm then it will save a lot of time in the execution of the project.

3. Best Practices

Even if you have a defined business practice for your company, because of the repeat customers and businesses it will be easy for you to adopt a different practice with different clients. This is initially not possible for new customers as it may sometimes hurt the relationship itself.

How can you increase your repeat business?

It is not an easy task or a quick task to be accomplished. To understand this you should understand as when you will call your business a successful one or not.

The best answer I can say is the quote of Ilya Lichtenstein  “it usually takes at least 5 years to build a company to exit or profitability. They’re built piece by piece, making one user or customer at a time, getting to the next milestone and waiting for the next major opportunity to reveal itself”

What is the right percentage to have repeat customer or revenue?

It is practically true that you have to run a business for 5 years to take a call whether it is a profitable one or not. Until then you have to struggle and put in your best possible efforts to accomplish the task of running it.

There is no exact percentage to be capped for this. But the industry norm is to be between 25-50%.

If we have to take a call at the end of 5 years then you should be getting between 5-10% of your revenue from repeat business or at least at the end of the third year your repeat revenue should be above 25%.

If you are able to cross 50% in the 5th years, then you are very well placed in the market for the next 3 -5 years minimum on profitability. If this task is achieved then your concentration should be focussed on New Business with 30% growth every year.

If the above is reached in a Small and Medium Business in the IT service Industry, then you will be at the employee head count of 150 in the 3-4th year, 250 at the 5-6th year and would have crossed 500 by the end of 7th year.

So concentrate on New Business for the first 2 years then Repeat Business till the 5th year and then onwards your business will accelerate exponentially as you have already started splitting the revenue between new and repeat businesses successfully.

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Business Funding?

finance-new-year-plans

Vision:

I have a wonderful concept for business.

Mission:

I am going for funding.

Above is the current common scenario we can see now. No need to think of your funding at the very initial stage as long as your business is unique in nature.

To build we need fund. But to run, the product should earn at the appropriate stage. If the product is not earning enough to have a smooth run, then I am sure the product is not “unique” or didn’t impress the market as your think.

Determine the purpose of raising money. If the purpose is to build the basic model of your product then you are making a mistake.

If you are not able to nail the absolute necessity for raising the money then you are again making the mistake.

You cannot go to market if you don’t have any uniqueness in your product. The market and the VCs would have seen much products of the same nature of yours and so it may neither impress the market to buy or the VCs to fund.

If you can afford then you should bootstrap and bring the first version of the product to the market. See the impression it is creating in the market and then draw the roadmap for expansion and go for funding.

Everything comes with a “price” and so is funding too. You have to determine the price you can afford to pay by getting the fund. Else your identity will be lost in front of your product.

Bootstrapping is considered the best depending upon the nature of the product you are going to build and the span it is going to take. If these are well within your limits then better to go bootstrapping.

If the supply is getting drained then work out the best way to go to market for funding. Don’t bring funding too early. Else it will absolutely get diluted early too.

Also, make sure that you are aware of the following when you are going to pitch to a potential VC.

* Understand the complete weakness of your product along with its uniqueness.

* Don’t bloat your projected revenue to an unrealistic number

* Understand your big competitors and compare yourself with them in all form and shape rather than hiding them or extrapolating yourself.

* Don’t approach every known VCs. This will dilute your business identity.

* As how the VCs evaluate the businesses to be funded the same way you should do a thorough evaluation of the VC firms too.

* Make sure that you are not pausing or using too many fillers during your prime pitching.

* Don’t do the routine presentation. Do it in a very innovative way. Your pitch and the presentation should impress the VCs at the very first instance. Else even if you go to them for many levels of discussion you will not succeed.

* The bio of your team should get sold first before your product gets. So bring in the right people with you. Else it will become the worst reason for your failure.

Two types of people who are bane of the core team!!!

IT-Boon-Bane

One good idea out of 1000s will give birth to startup. It is the fiduciary responsibility of any Founder to evaluate all the 1000s and chose the best.

Never start a business if you don’t have some knowledge about the new business you are starting. After choosing the right idea out of the 1000s, spending enough time in gathering sufficient knowledge and history about that concept should be the first stage before doing market research about the new idea or concept.

After spending all these and investing the first chunk of money, we will make our concept take off and start showing the growth.

Here is where we will form our core team to take the business further. Each member of the core team should not only work as an employee but should also consider themselves as the founding member of the company/team.

If we are able to get a core team of this virtue, I bet, there won’t be a stage of closing down the business.

This applies and plays a vital role not only in Founding any company but also on starting a new business unit on an ongoing company.

There will be differences of opinion among these core team members on concept wise along with work nature too. The duty of the person who balances these and run the show are called as “leaders”.

Two types of people

In spite of being a leader, there will be two types of people who will become the real bane of the core team by playing a spoiling game.

They are:

1. People who believe, responsibilities are to be given rather than taken, and

2. People who believe they should be the key member on all initiatives.

Both of them are the real bane of the core team. They not only spoil their roles but also spoil the morale and binding of the entire core team. Both of them will knowingly or unknowingly inject negative thoughts into the mind of everyone around them.

How to identify them?

It is one of the tough jobs of any leader of a team or a company to identify these people. Becuase they would have already deep rooted their thoughts into the team and if any action taken against them for any genuine reason, will be seen as they are vindicated. 

1. Both of these characters would have been the outstanding performers but started showing slowdown now.

2. They would have the best knowledge of their respective roles but started playing silent spectator role in recent days

3. They would have been the most flexible during the starting days but become very rigid now

4. The first one would have started to whine out with the current responsibilities and will not show any interest in taking any new responsibilities.

5. The second one would not have completed the earlier given role but would assume he is smart enough and started expecting to be made as the key player of all new initiatives.

How to eradicate them?

Even after many personal discussion, their ego would not allow them to accept the reality and change. We will tolerate them for months just because they were the most wonderful people we had earlier.

But the need of the hour would not be allowing us to give more room to tolerate them. So rather than tolerating them, it is better to let them go so that at least we can maintain the friendship with them.

With the new company and new environment, they will automatically revert to their original capability and flexibility.

So it is good for both the company and the individuals to shake hands and “call it a day”.